Can the IRS Challenge Your Company's Classification of Independent Contractors

Since laws enacted in 1978, the IRS cannot re-classify your business' independent contractors as employees for purposes of determining whether you must withhold for payroll tax purposes.  This is the case so long as you file timely 1099's on these workers and have a "reasonable basis" for your classification. 

So, what constitutes a reasonable basis?  Well, so long as it includes reliance on a prior court ruling, IRS directive or industry standard, the IRS must (not may) accept your designation and cannot challenge it.  Here's the key: you must have known your reasoning before making your designation.  In other words, it pays to know why you are classifying your worker as an independent contractor before the IRS asks you why you are not paying payroll taxes.

Call me if you need help with this.  As you can imagine, you will be under a great deal of scrutiny if you are scrambling around without a plan for how to handle these IRS questions.  We can also help you file timely 1099's for your independent contractors, which is the litmus test of credibility for backing up your worker classifications.
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